Australian shares are expected to open on a downward trajectory today, mirroring a mid-afternoon reversal in the U.S. S&P 500 and a notable shift in the rate expectations set forth by the U.S. Federal Reserve. ASX futures indicate a drop of 16 points, or 0.2 per cent, to 7,155 around 7 am AEST, marking a stark contrast to earlier gains of more than 20 points.
This shift in sentiment transpired after the Federal Reserve’s announcement at 4 am AEST, during which policymakers opted to maintain interest rates for the current month but left room for the possibility of an additional quarter-point increase later in the year. Importantly, they signaled a slower transition toward rate cuts in 2024, diverging from previous market expectations.
Morgan Stanley’s Chief Economist, Ellen Zentner, noted, “A further hike this year remains an option, and the message of ‘higher for longer’ was emphasized through fewer projected rate cuts in 2024, with a median funds rate of 2.875 per cent expected by the end of 2026.”
In the U.S. market, responses were mixed, with the Dow Jones declining by 0.2%, the S&P 500 by 0.9%, and the Nasdaq by 1.5%. Among individual stocks, BHP registered a 0.6% decrease, while Atlassian (NASDAQ: TEAM) experienced a more significant 2.2% drop. On the other hand, Rio managed a marginal gain of 0.2%.
Tech giants faced losses, with Tesla (NASDAQ: TSLA) down by 1.5%, Apple (NASDAQ: AAPL) by 2%, Alphabet (NASDAQ: GOOGL) by 3.1%, and NYSE Fang by 2.1%. Notable movers included Klaviyo, which surged by 9.2% during its trading debut, Instacart, which slid by 10.7%, and Arm Holdings (NASDAQ: ARM), down by 4.1%.
U.S. Treasury two-year yields reached their highest level since 2006, while the ten-year yield peaked at 4.40% late in New York’s trading day, reflecting the market’s reaction to the Federal Reserve’s announcement.
Earlier in the day, U.S. stocks displayed a mixed performance after the Federal Reserve indicated it may not reduce interest rates as extensively in the coming year as previously anticipated. The S&P 500 posted a 0.1 per cent gain in afternoon trading, with the Dow Jones up by 0.6 per cent and the Nasdaq composite down by 0.1 per cent. Meanwhile, the Australian share market was poised to open higher, with futures pointing to a 15-point increase, equivalent to a 0.2 per cent gain at the opening.
Fed Chairman Jerome Powell stated that the central bank is “prepared to raise rates further if appropriate.” The Fed maintained its primary interest rate and hinted at the possibility of one more rate hike this year as part of its efforts to bring inflation back to its 2 per cent target. Furthermore, Fed officials suggested they might reduce rates by only half a percentage point next year, deviating from their prior projection of a full percentage point cut in 2024.
